royalty-free licensing or dedication of Government-owned inventions, though our regulations permit of some exceptions to this where the public interest in achieving the development and practical application of inventions can best be promoted through other means. Our regulations on this subject have been under intensive review within the Department for some time to assure that our basic policy will be more effectively carried out.

S. 789

The provisions of this bill are incompatible with the Department's research objectives and would require a reversal of existing Department policy. It provides that rights to inventions deriving from Government-sponsored research shall normally be retained by contractors and grantees subject only to a nonexclusive license to the Government for governmental purposes, and that only in very exceptional circumstances, which do not appear to be applicable to this Department, the Government may assert title. Even in those circumstances where the United States might be entitled to acquire greater rights than a nonexclusive license, such rights would under the bill be susceptible to waiver back to the contractor on the basis of factors which are either purely speculative or equated only to the contractor's interests rather than to those of the public. Thus, for example, the fact that the invention was developed by a small business would, ipso facto, constitute a basis for waiving rights to a small business contractor even in the relatively rare circumstances where the Government would take ownership under section 3 (a) (1)—(5).

Moreover, while the bill (sec. 5) would empower a Government agency to require the holder of a patent (resulting from Government-financed research) to grant nonexclusive licenses to third persons under limited circumstances, the bill requires that the proof of those circumstances, some of which are really judgmental in nature, be conclusive.

The entire thrust of the bill is thus to impede the Government's taking and retaining ownership of inventions derived from federally financed research by making this a long, arduous, and exceedingly difficult, and in many cases impossible, task.

It is our opinion that the measure would frustrate the objectives of this Department's research activities and, consequently, we urge that the bill not be favorably considered.

S. 1809

We are in accord with the basic principle of those portions of this bill that are applicable to this Department's research activities and substantially parallel the Presidential statement of Government patent policy (1963), i.e., the principle that in general, with respect to research in the fields of health, education, and welfare, the Government should acquire, for the benefit of all the people. the rights to inventions resulting from Government-financed research.

However, even if this comprehensive bill were to be brought fully into line with the President's statement, we would have reservations as to the advisability of its enactment at this time, although, for reasons stated below, clarification of authority for licensing under Government-held patents is needed (see sec. 8(b) of the bill). The experience had under the President's statement has been limited and we hesitate to recommend that the policies reflected therein be given the permanent force and effect of law which enactment would bestow. However, if the committee should decide that legislation is needed at this time, we would not object to enactment of this bill, insofar as it affects this Department, if it is modified to take account of the comments made below. (In that event, we should also appreciate an opportunity to submit to the Committee or to staff further technical comment.)

(a) Section 4 of this bill, its key section, defines broadly the property rights in inventions that may be acquired by the Government and the contractor or grantee, respectively, either at the time of entering into the contract or grant or thereafter. With some significant differences (referred to in part below), section 4 parallels the Presidential statement of Government patent policy. Of primary concern to this Department is section 4(a)-comparable in general to section 1(a) of the Presidential statements-which covers (among other things) contracts or grants for "exploration into fields which directly concern the public health, welfare, or safety," and which lays down the general rule, subject to exceptions, that contracts and grants within its scope should provide for giving the United States the principal or exclusive rights in inventions made by the

contractor or grantee. In this connection, it should be noted, first that section 4(a) (2) of the bill is too tightly drawn in requiring that "the purpose," rather than "a principal purpose," of the contract (or grant) be for research concerning public health, welfare, or safety.

We note, secondly, that, in allowing the agency head to make exceptions to this policy in "exceptional circumstances," section 4(a) of the bill merely requires a certificate of the agency head that in the particular case the granting of the exception "will best serve the public interest," whereas the Presidential statement more closely limits the discretion of the agency head in this respect where the exception is made after the invention has been identified; in such cases the statement specifically permits an exception only where the invention is not a primary object of the contract and the transfer of the right to the conractor or grantee is not only consistent with the basic intent of section 1(a) of the statement but is "a necessary incentive to call forth private risk capital and expense to bring the invention to the point of practical application." It may well be desirable to insert these limitations in the bill itself.

Finally, we strongly urge that before any right greater than a nonexclusive license is granted under section 4(a) to a contractor or grantee under the "exceptional circumstances" provision of section 4(a) upon disclosure of the invention, public notice of the proposal and opportunity for hearing to all interested persons should be required. Moreover, we should like to emphasize that, while section 4(a) would allow, as the President's statement allows, leaving all invention rights to the contractor or grantee at the time the grant or contract is made, where this is considered to be in the public interest in exceptional circumstances, we intend to utilize this exception in our own programs rarely if ever.

(b) Subsections (b) and (c) of section 4 of this bill, permitting greater rights than a nonexclusive license to be conferred on contractors or grantees under certain conditions, are presumably designed to apply only to situations where the contract or grant does not come within the ambit of subsection (a). However, unlike the analogous provisions of the Presidential statement (section 1(b)), the bill in section 4(b), fails to state this limitation; we assume that this omission-a serious one-was inadvertent. If section 4(a) is amended to supply this omission, there would be relatively few situations when either section 4 (b) or (c) would involve research supported by this Department. Even so, we question-as inconsistent with the general policy of this Department that the fruits of Government-financed research in health, education, and welfare belong to the public-the provisions of these subsections that would limit the Government to a nonexclusive license unless the agency head determines "that there are special circumstances which indicate that the public interest would suffer as a result of the contractor (or grantee) retaining the principal or exclusive rights in such invention." [Emphasis ours.] Where the public interest is to be the touchstone, we think that a determination of the agency head that the public interest is best served by vesting principal or exclusive rights in the Government should suffice, instead of requiring the agency head to show that injury to the public interest would otherwise result and that that injury is due to "special circumstances."

(c) Section 8(b) would establish clearly the now doubtful authority of agency heads to grant exclusive licenses (on a royalty basis or otherwise) under Government-held patents. This provision, subject to technical improvement of its language, is desirable but should be carefully circumscribed by appropriate safeguards, including a requirement for public notice and opportunity for hearing to interested persons before such a license is granted.

(d) We are opposed to the proposition, reflected in section 5 of the bill, that although a contract or grant reserves to the agency head the right, after an invention has been identified, to acquire for the Government greater rights than a nonexclusive license, he may exercise this right only after according the contractor or grantee an opportunity for a hearing conducted in compliance with the Administrative Procedure Act, and that the agency head's decision shall then be subject to judicial review on the basis of the substantial-evidence rule. In the first place, we see no reason for granting greater hearing rights in this respect than with respect to other rights reserved by an agency under a Government contract. In the second place, to subject the agency head's determination to judicial review as to what the public interest requires-and this is what it amounts to-is to confer on the appellate courts a revisory role over administrative agencies analogous to their revisory powers over the lower courts, instead of limiting them to their legitimate and traditional function of confining the

administrative agencies, in cases of controversy, within the bounds of law. And most importantly, the delays that these provisions for judicial review, when invoked are likely to entail threaten to destroy the usefulness of the ownership of an invention so acquired by the Government and of any licenses the Government may issue thereunder, because no one could rely on such a license until judicial review had been completed.

(e) We believe there is need for criteria to promote consistent interpretation, by the various Government agencies of such terms as "exceptional circumstances" and "special circumstances" as they appear in this legislation.

S. 1899

This bill would establish in the executive branch of the Government a Federal Inventions Administration headed by an Administrator of Federal Inventions, who in essence, would have complete control of the disposition of Government-owned proprietary rights in inventions, data, etc. Insofar as invention

rights are concerned, this bill provides that the Government shall have exclusive right and title to any inventions made by a Government employee under circumstances quite similar to those enumerated in Executive Order 10096. In addition, the bill provides that the United States shall have exclusive right and title to any invention made by any person in the course of or in consequence of any research, development, or exploration activity undertaken by that person or any other person for the performance of an obligation that has arisen either directly or indirectly from any contract or lease or grant made by or on behalf of any executive agency. Thus, this bill, unlike either S. 789 or S. 1809, would have the Government take exclusive right and title to substantially all inventions made by either a Government employee or a contractor or a grantee. Under S. 1899 there is no provision for agreeing to leave title to inventions with a contractor or grantee at the time of contracting. However, there are provisions (section 10(a)) for waiver of rights by the Administrator after the invention has been identified and after compliance with certain rather detailed administrative procedures which, in effect, would place the burden for obtaining waiver upon the party requesting greater rights.

As in the case of S. 1809, we are in basic agreement with the philosophy of S. 1899 with respect to the ownership of Government-financed inventions insofar as the research activities of this Department are concerned. The bill, moreover, would facilitate the achievement of a degree of consistency not now present in the Government's support of research and development activities. The extent to which consistency is appropriate in all areas of the Government is a question to be explored with other agencies in the light of their respective missions. Section 11 of the bill would have the effect of standardizing contract clauses throughout the Government by providing that the Federal Inventions Administrator determine, with the written approval of the Attorney General, the adequacy of provisions to be used in grants, leases, and contracts for the protection of the proprietary interests of the United States in inventions. Also, the centralization of complete control of the disposition of Government-owned rights in inventions and data in a single Administrator would further the objective of consistent action by all Government agencies engaged in research and development support. We do, however entertain substantial doubts concerning some of the provisions of the bill. Section 8 confers upon the Administrator virtually unlimited latitude for disposition of the proprietary interests of the United States in any invention. with the approval of the Attorney General and subject to the requirements of military security. The only guidelines or criteria provided by the bill are the very general ones set out in section 4(a) of the measure. It would seem that more specifically defined criteria should be provided if authority of such magnitude is to be centralized in a single Government official. This arrangement also raises the question whether the Federal Inventions Administrator is more qualified with respect to disposition in whole or in part of proprietary interests in inventions in the wide variety of scientific fields and disciplines than the heads of the agencies who are most conversant with the special missions of their agencies and either themselves possess special competence, or have available to them through their agency staff such competence, in the fields of science in which the inventions occur. We also question whether, if the Attorney General is to be involved, this should not be limited to situations where antitrust or monopoly implications might be present, and whether in that event this review should not be limited to these implications.

We would also be concerned with the establishment of a new Administration which would have responsibility for administering invention, patent, and technical data aspects of the grants, contracts, and other arrangements of the many agencies engaged in support of research activities. It should be pointed out that grantees and contractors are currently subject to review and audit by the granting or contracting agency and the General Accounting Office. The functions imposed upon the Inventions Administrator would inevitably result in subjecting grantees and contractors to a third source of review and audit. Additionally, it would seem that in order to monitor the grants and contracts and to make determinations respecting waiver and disposition of proprietary interests, the Inventions Administration would be required to develop a degree of special competence in the various scientific disciplines in which research is being conducted, thus duplicating such expertise already existing in the agencies responsible for the grants and contracts.

We also seriously question the provisions of section 7(a) of the bill which would make the Federal Inventions Administration the agency principally responsible for the receipt, storage, and dissemination of scientific and technical information deriving from research and development activities of Federal agencies and their grantees and contractors. There already exist organizations responsible for the collection and dissemination of technical information, e.g., the Science Information Exchange, the Clearinghouse for Federal Scientific and Technical Information, and the National Library of Medicine. Apart from the question of the duplication of such resources and repositories of information, there is raised the question whether the provisions of the measure would result in an undesirable diversion of scientific and technical information away from traditional sources.

Section 7(b) (2) provides for the evaluation of scientific technical information available to the Administration to determine its probable application to commercial uses in the development of new and better products and advanced technological methods of production. For one Government agency to assume the monumental undertaking of evaluating the results of all research as to their suitability for commercial uses, a task which is now performed on an ad hoc basis by industry and the entire scientific community, would be prohibitive in terms of appropriations and the manpower needed to perform such a task.

Section 10(a)(1)(A) provides for waiver of the Government's proprietary right where the recipient's investment in making the invention so far exceeds the Government's that equitable considerations favor the granting of a waiver. Since the granting of such a waiver is in acknowledgment of the contractor's greater equitable interest in the invention neither the considerations of section 10(a) (1) (B) (i.e., whether it would advance the interests of the United States or result in a monopoly or concentration of economic power), nor the conditions imposed in such a waiver (section 10(b)), seem equitable or appropriate.

To recapitulate: (1) Except to section 8(b) of S. 1809, we believe that further administrative experience under the Presidential policy statement be developed and evaluated before a definitive set of principles and procedures is imbedded in a statute on this subject. (2) We recommend enactment of legislation to make clear the authority of the Government to grant exclusive licenses under Government-held inventions (see section 8(b) of S. 1809), subject to public notice and opportunity for hearing to interested persons and to other safeguards. (3) If, however, the Congress should decide to enact comprehensive legislation at this time, we would not object to the enactment of S. 1809 rather than the other bills described in this report, if the bill is modified so as to take account of the above-stated comments on that bill.

We are advised by the Bureau of the Budget that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely,

Secretary.

DEPARTMENT OF THE INTERIOR. Washington, D.C., September 9, 1965.

Hon. JAMES O. EASTLAND,

Chairman, Committee on the Judiciary,

U.S. Senate, Washington, D.C.

DEAR SENATOR EASTLAND: This responds to your request for the views of this Department on S. 789, a bill cited as the National Inventions Act, and S. 1809 and S. 1899, similar bills cited as the Federal Inventions Act.

54-400-65-pt. 1--7

There has been a complex historical relationship between the Government and its contractors with respect to the rights of both to patents associated with the contractors' work. On October 10, 1963, President Kennedy issued a memorandum and statement of Government patent policy covering the disposition of patent rights in all inventions and discoveries made under Government contracts involving the conduct of experimental, developmental, or research work. Under certain conditions, described in the statement, the Government my acquire principal or exclusive rights to such inventions or discoveries. These conditions are described generally in section 4 (a) of S. 1809, and exist whenever (1) the purpose of the contract is to develop processes intended for public, commercial use; (2) the contract relates to fields directly concerning public health, welfare, or safety; (3) the Government is the sole or principal organization concerned with the subject matter of the patent and licensing might confer a dominant position upon the contractor; or (4) the contract concerns the operation of a Government research or production facility. In other circumstances, where the contract concerns an area in which the contractor already has an established nongovernmental commercial position, the patent rights may vest in the contractor. This situation is described in section 4(b) of S. 1809. Where no determination can be readily made, the agency head must determine the proper method of handling disposition of patent rights after the invention has been identified. This situation is covered by section 4 (c) of S. 1809.

The President's statement was issued to permit some measure of flexibility of handling the ultimate ownership of patents within the context of the vastly differing types of contracts which the Government may execute in the exercise of its sovereign responsibilities. The statement was adopted in recognition of the fact that "it is not feasible to have complete uniformity of practice throughout the Government in view of the differing measure and statutory responsibilities of the several departments and agencies engaged in research and development." In the majority of situations in which the issue of patent ownership becomes important, this Department has found it necessary to acquire principal and exclusive patent rights. The policy statement provides ample guidelines and authority for the proper retention and/or disposition of patent rights arising out of its contracts with private contractors at least for the siuations which have confronted us. Accordingly, this Department does not feel that any legislation on this subject is required to permit it to carry out its programs with a proper regard for the public interest.

If the Congress should deem it desirable to enact legislation on this subject, the adoption of S. 1809 would write into statutory law the substance of the President's policy statement. Such action would not adversely affect patent policies of the Department because the Government would take the principal rights in inventions affecting the public health, welfare, and safety and those arising out of contracts for new products or processes intended for public use. If S. 1809 should be enacted, however, at least one clarification of the bill seems desirable. Section 2 (c) and (d) defining the terms "contract" and "contractor” could be interpreted as including all employment contracts between the Government and its employees. While this treatment is entirely appropriate in many cases, examples could arise where it would be inequitable for the Government to take title. Such a case might occur where an employee developed a patentable idea, on his own time and with his own materials, arising from a problem associated with his work. Some flexibility is needed. The Department's patent regulations have satisfactorily defined the respective rights of the employee and the Government inventions. Clarifying amendments regarding employee rights would leave commercial rights to the invention with the employee in appropriate circumstances, are believed desirable.

The enactment of S. 1899 would not significantly affect the patent policies of this Department either, since it requires the Government to take title to patents produced under Government contracts in most cases, which is presently being done. Only under certain limited conditions may a waiver of this requirement be granted. It must be said, however, that enactment of this legislation would drastically alter patents administration.

Sections 9 (b) and (c) of the bill require the Commissioner of Patents to forward to the Administrator of the Federal Patent Administration all patent applications filed in the names of employees in any organization having a Government contract. The Administrator is then given 90 days within which to decide whether or not to take title in the name of the Government. This would require the employment of a staff of hundreds of trained examiners to make the